This paper proposes an approach that associates the risk-neutral probability measure with option prices and then computes the expectation of quantities under the real world probability measure, exploiting the form of the stochastic discount factor. This approach deviates from foundational...

In our approach, the conditional expectation of asset return quantities, under the real-world probability measure, can be expressed as a linear combination of the prices of the risk-free bond, the asset, and options on the asset. The method is free of distributional assumptions, and we use it to...

The VIX futures curve is most often in contango but displays backwardation during unfavorable market conditions. We construct an explanation based on the notion of stochastic orders of volatility uncertainty – meaning that investors view short-dated volatility uncertainty as being less likely...

The goal of this paper is to show that the growth rate of the Baltic Dry Index (BDI) has predictive ability for a range of stock markets, which is demonstrated through in-sample tests and out-of-sample statistics.The documented stock return predictability is also of economic significance, as...

The goal of this paper is to show that the growth rate of the Baltic Dry Index (BDI) has predictive ability for a range of stock markets, which is demonstrated through in-sample tests and out-of-sample statistics.The documented stock return predictability is also of economic significance, as...

This paper presents an option positioning that allows us to infer forward variances from option portfolios. The forward variances we construct from equity index options help to predict (i) growth in measures of real economic activity, (ii) Treasury bill returns, (iii) stock market returns, and...

The structural uncertainty model with Bayesian learning, advanced by Weitzman (AER 2007), provides a framework for gauging the effect of structural uncertainty on asset prices and risk premiums. This paper provides an operational version of this approach that incorporates realistic priors about...

The structural uncertainty model with Bayesian learning, advanced by Weitzman (AER 2007), provides a framework for gauging the effect of structural uncertainty on asset prices and risk premiums. This paper provides an operational version of this approach that incorporates realistic priors about...

The structural uncertainty model with Bayesian learning, advanced by Weitzman (AER 2007), provides a framework for gauging the effect of structural uncertainty on asset prices and risk premiums. This paper provides an operational version of this approach that incorporates realistic priors about...